In the latest sign that the U.K.’s deepening economic malaise is hitting the wider real economy, two of the largest high street lenders, Halifax and Nationwide, reported house prices fell on both the month and the year in July.

The decline is the result of a combination of factors–recession, euro zone debt crisis, rising mortgage costs, jobs fears and weak earnings growth. That means Britons are increasingly feeling the pain of domestic and overseas weakness, and losing, bit-by-bit, what little confidence in the economy they have left.

U.K. house prices fell sharply in April, according to the Halifax survey out earlier Friday. But that doesn’t tell the whole story of the U.K.’s once booming housing market.

The Halifax House Price Index for April came just one day after the Nationwide index which reported a smaller but second successive monthly house price fall. Both reports said the main reason for the drop was due to a lack of demand as the Government’s first-time buyer stamp duty land tax break ended on March 24.

But, an ongoing lack of mortgage finance, as well as the rising cost of securing it and weak consumer confidence all continue to be significant, if not bigger problems for those with aspirations of buying a home at the moment.

“The bigger picture is surely that, with the economy back in recession, mortgage credit conditions tightening, mortgage interest rates edging up and confidence weak, the headwinds facing the over valued housing market are freshening,” said Ed Stansfield, chief property economist at Capital economics.

But, while the U.K.’s housing market is clearly weak, the steep 2.4% monthly decline, or £3,913 taken off the average price of a house for sale in the U.K. according to Halifax, might be overstating the situation.

Halifax’s closely watched index of house prices Wednesday showed a surprise increase in June. Although prices were lower in the second quarter than in the same period of 2010, the decline has slowed. The quarter-on-quarter fall was the shallowest in a year.

The start of a housing recovery? You’d be hard pressed to find anyone who thinks so. Even Halifax itself isn’t particularly bullish. Its in-house economist Martin Ellis suggested the market will show “broad stability” in the face of “significant headwinds.” June’s rise is largely a demonstration of how volatile the market is, a consequence of low levels of activity, he said.

Indeed data from the Land Registry, a government agency that puts together comprehensive data a few months after the fact, suggests momentum is squarely downwards.

The facts suggest his won’t change direction any time soon. The many factors pushing down on house prices include…

Efforts are under way to kick-start the U.K.’s flagging housing market.

Leading FTSE house builders met the Council of Mortgage Lenders last week to find a way of providing mortgages worth 95% of a property’s value. This could lead to the creation of a fund to be used by banks to underwrite mortgages.

The hope is that the move will combine with recent government measures–including £250 million in assistance for first-time buyers, stamp duty reform and a relaxation of the planning system— to boost the beleaguered property sector.

The news coincides with a report from mortgage lender Halifax which identified the emergence of ‘Generation Rent.’ It seems a majority of young people without their own homes believe they have no prospect of getting on the property ladder.

The perception that banks aren’t lending in these troubled times, the size of those dreaded mortgage deposits and a fear of the application process has prevented many from making any significant attempts to buy a home, the survey said.

But just how successful might the house builders and banks be in changing such perceptions?